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The quest for cost reduction in O&M is driving technology innovation in areas such as robotics and automation, as well as the development of more effective systems for asset management, monitoring, workflows and more.

The outlook for US solar appeared to take a turn for the worse when President Trump slapped a tariff on imported panels in 2018. Reuters reported that the move halted more than $2.5bn in investments in large projects, or more than a third of the total market size in 2017. Further analysis revealed that the impact of the tariff, aimed at Chinese products, would likely be blunted by manufacturers’ ability to supply panels from other parts of Southeast Asia. Nevertheless, the episode served to show that US solar growth may not be unstoppable.

Indeed, as the industry has grown and matured it has already started to see a shift in emphasis away from rapid buildout and towards maximization of production and even consolidation of players and portfolios. This has placed the spotlight on the role of operations and maintenance (O&M) in increasing the returns plant owners can expect once projects have been completed. O&M, previously viewed almost as an afterthought, has become a major specialty in its own right.

The importance of the topic is underscored by the range and depth of O&M subjects up for debate at Solar PV Operations USA 2018, on November 7 and 8 at the Hilton San Diego Mission Valley Hotel in California. With 500-plus attendees set to hear from more than 60 speakers on matters as diverse as solar plus storage and PV smart grids, the event will boast one of the most complete O&M programs of any renewable energy conference in the country.

To set the scene, this white paper provides an overview of the US PV O&M market and its main trends and challenges.

Regional markets

According to the Q2 2018 US Solar Market Insight report published by the Solar Energy Industries Association (SEIA) and GTM Research, the US market installed 2.5 GW of solar PV in the first quarter of 2018. This was a 13% year-over-year increase and a 37% quarter-over-quarter decrease. Perhaps more importantly, it was the second consecutive quarter in which solar accounted for the largest share of new generation capacity additions in the country.

This solar boom is being driven by ultra-low power-purchase agreement (PPA) prices. Such pricing is not necessarily a good thing for O&M, says Zachary Livingston, vice president of sales and head of the Americas business at Locus Energy. “There’s a race to the bottom,” he says. “But when you get into cost competition it’s not good for the industry.”

Renewable energy targets by state

The top three markets for solar in the US are California, Florida and New York, with 1 GW, 482 MW and 124 MW of installations in the first quarter of the year, respectively. Rounding off the top 10 markets in the country were Arkansas, Minnesota, North Carolina, Arizona, New Jersey, Massachusetts and Texas.

While, increasingly, new capacity additions are driven by the fact that solar is now cheaper than most other generation sources, it helps that 38 US states plus Washington DC all have a renewable portfolio standard (RPS).

Meanwhile, DSIRE, the incentives database operated by the N.C. Clean Energy Technology Center at N.C. State University and funded by the US Department of Energy, lists 49 RPS programs across the country. Several date back to 2000. The most significant of these, given the size and power demand of the state in question, is that for California. It currently states that investor-owned and municipal utilities will need to get 50% of their energy from renewables by 2030.

Current PPAs

Solar power’s ability to deliver energy at a rate below any other form of generation has been demonstrated in a number of recent PPAs. In December 2017, for example, the Texas utility Austin Energy signed a 15-year PPA with Intersect Power for a price that is thought to have been somewhere between $27.25 and $21/MWh.

This was followed in June 2018 by an almost equally low PPA between AZ Solar 1 and the Central Arizona Project, a municipal water agency, for $24.99/MWh over 20 years. And just a few days later, 8minutenergy submitted a bid of just $23.76/MWh over 25 years in a solicitation by NV Energy of Nevada.

The effect on O&M is clear, says Ian Steele, solar division manager at World Wind & Solar LLC, an independent service provider (ISP) of mowing and panel washing services. “O&M costs are getting tighter,” he says. “O&M budgets are dropping, so we are being forced to maintain a facility at a lower dollar-per-kilowatt price.”

This is forcing owners, original equipment manufacturers and ISPs to become more resourceful, he says. One example is in the formation of partnerships that allow ISP technicians or sub-contractors to supplement full-time staff and offset the cost of having to keep experts on site.

Another feature of falling O&M budgets is that it forces providers to seek out technological innovations to reduce human resources costs, says Steele.

Finance mechanisms

Research in 2016 by the US National Renewable Energy Laboratory and the Lawrence Berkeley National Laboratory suggested that financial innovation alone could cut the cost of solar energy by up to 60%. In recent years, however, the fate of yieldcos, traded asset-holding vehicles that failed to live up to early hype, appears to have dampened enthusiasm for financial experimentation. During 2015, numerous solar developers spun projects off into yieldcos around the world.

But in the US, in particular, the structure of these vehicles led to poor performance. Hence, interest in the concept has waned while solar stocks in general have surged on Wall Street. In terms of projects, Bloomberg New Energy Finance figures show US solar investment dropping off slightly from a 2015 peak, against a relatively stable annual running average.

New investment in US clean energy, by sector, Q1 2005-Q1 2018. Source: Bloomberg New Energy Finance.

However, the figures conceal a broadening of access to finance across different solar segments. The traditionally hard-to-fund commercial and industrial segment, for example, grew 28% in 2017, according to the SEIA. This trend appears to be continuing in 2018. In April, for example, Open Energy unveiled a capital lease program, worth $50m, to fund commercial projects costing from $250,000 to $2m.

Consolidation

In 2017, the level of consolidation among US PV O&M players was considered high, with around half of all large-scale plants being served by the top 10 players in the market. The consolidation of O&M players somewhat mirrors the pattern being seen among asset owners, not only in the US but also in other mature solar markets, of consolidating plants into increasingly large project portfolios. This, too, has an implication for O&M.

Portfolio consolidation means project owners can achieve economies of scale in areas such as spares provision and long-term service contracts. It also improves the return on investment for in-house O&M services and systems, helping to reduce costs.

The impact of tariffs

In January 2018, President Donald Trump signed a four-year order placing tariffs on imported solar cells and modules. The tariffs, which kicked in on February 7, were set at 30% for the first year, with a 5% cut in each subsequent year, down to 15%. The tariffs were widely seen as threatening the continued growth of the US solar market. Developer Cypress Creek, for example, put a stop to 1.5 GW of planned developments. Subsequently, however, it appears the impact might not be as bad as was first thought.

Some leading module manufacturers, including LG and Hanwha Q Cells Korea, have announced plans to create manufacturing facilities in the US as a way of avoiding the tariffs. Meanwhile, the tariffs do not seem to have affected developers’ ability to deliver record low bids (see above). From an O&M perspective, though, it seems likely that tariffs will only increase the need for cost reduction.

This will force O&M providers and in-house teams to rely more and more on technology and systems. It could also, conversely, create pressure to deliver higher-quality O&M because there will be less of a margin for errors and sub-standard work.

Outlook and conclusions

In many respects, the main trends affecting US PV O&M in 2018 are similar to those taking place in many other mature markets. The most obvious one is cost reduction, which in the US is exacerbated by the impact of import tariffs and intense competition on PPA pricing. At the same time, there is growing portfolio and service provider consolidation. This is generally a positive trend from an O&M perspective, since it allows for economies of scale. However, excessive consolidation could stifle the industry’s capacity for innovation.

The quest for cost reduction in O&M is driving technology innovation in areas such as robotics and automation, as well as the development of more effective systems for asset management, monitoring, workflows and more. There is still room for improvement along the path towards more preemptive analytics, though, according to John Balfour, president and CTO of High Performance PV, who has been working in the solar industry since 1977.

For example, he says: “We use infrared, but we don’t use multiband infrared, which is going to give us a much more accurate picture of what’s going on. Nor, in many instances, are people trained to use it. But that technology group can be very, very powerful.”

Similarly, ultraviolet fluorescence technology can help with identifying browning issues and electroluminescence could address a series of problems including micro-fracturing and Potential Induced Degradation, Balfour says. “By 2025 we will probably see their use in automated systems, both aerial and mobile, that will do a quick, accurate and geotagged analysis of modules, wire management, inverters and transformers, so you’ll be able to get a fairly good and accurate root cause analysis.”

12. David Feldman and Mark Bolinger, National Renewable Energy Laboratory, NREL/TP-6A20-65638,2016: On the Path to SunShot: Emerging Opportunities and Challenges in Financing Solar. Available at http://www.nrel.gov/docs/fy16osti/65638.pdf.

13. Jason Deign, Solarplaza, November 16, 2015: Data shows how yieldco woes are confined to US. Available at https://www.solarplaza.com/channels/finance/11445/data-shows-how-yieldco-woes-are-confined-us/.

14. Julian Spector, Greentech Media, May 30, 2018: It’s Been a Pretty Good Year So Far for Solar Stocks. Available at https://www.greentechmedia.com/articles/read/its-been-a-pretty-good-year-for-solar-stocks#gs.FRWgbmA.

15. SEIA, March 2018: Solar Market Insight Report 2017 Year in Review. Available at https://www.seia.org/research-resources/solar-market-insight-report-2017-year-review.

16. John Weaver, PV Magazine, April 30, 2018: Open Energy dedicates $50 million to commercial solar power finance. Available at https://pv-magazine-usa.com/2018/04/30/50-million-for-commercial-solar-power-projects-ranging-from-200k-2m/.

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